“Never from the fields of human endeavour has so much been taken from so many by so few.” I am sure we have heard something similar before, but now I think it expresses the general view of the suppliers and growers of fresh produce.
What I hope to do over the next few articles is to put together a picture of the competitive arena in which we are all operating; how we got to where we are now and how can we keep a measure of control over the value chain. I apologise now to those of you who think some of the opening material is pretty basic but sometimes a good plan starts with a restatement of what you know.
The first and most obvious point is that the UK has a number of world-class retailers. Having worked with retailers throughout Europe, the US and the rest of the world I have seen few who could compare to Tesco et al. They have the scale, stores, systems and, above all, the brand trusted by consumers and the financial markets.
Particularly in the case of Tesco, the speed of its development has centred on the quality of the people within the business and continuity in the build-up of the team at all levels. Most of the senior managers have grown within the business and have been trained by exposure to many different areas and by access to the world’s best suppliers. In all honesty do any of us believe that a single produce supplier anywhere in the world could be benchmarked against P&G, Mars, Unilever, Campbells, Coca Cola etc.
On a smaller scale, a cadre of quality managers has driven the development of Waitrose over the last five to six years as John Lewis has allowed them access to store development funds.
So the major retailers shape the market in which we all operate and we have to find ways of working with them - it is futile to compete with them.
The fresh produce sector dwarfs most other categories in the retail market. It is bigger than bagged snacks, biscuits and breakfast cereals combined. However, fresh produce displays all the characteristics of a true commodity market and therefore has totally different dynamics to these brand-led sectors.
Thus the real question for suppliers of fresh produce is how can you devise a strategy to build a sustainable business? How can you add value to a basic commodity to maintain growth, while managing to keep customer relationships positive and proactive?
2004 was a very tough year for many sectors of the consumer packaged goods industry and 2005 is going to be tougher as the retailers look for competitive advantage. The new Morrisons, bigger Waitrose and the reshaping of Sainsbury’s will increase pressure on suppliers. Fresh produce has been static at best.
Within the broader FMCG markets, the well publicised switch from above the line advertising to targeted trade spend by retailers has continued. It is no coincidence that the biggest growth area in FMCG is in field marketing companies. Once again there are thousands of sales people on the road supporting in-store initiatives, just as it was 25 years ago. The difference now is that the retailers have control of the initiatives and the suppliers pay the bill. It is the cost of doing business and each initiative has a targetted outcome for the retailer and for the supplier.
In these slow, static and sometimes deflationary markets, how can the retailers maintain growth? The art of competitive positioning is now just that - an art form. The best take away from the rest by acquisition, store building, extension into new areas and by getting ever increasing levels of support from suppliers. So in fresh produce the retailers take around 50 per cent of the value chain, leaving very little to support the creation of added value from activated suppliers.
It is a very Thatcherite scenario as Mrs T expounded the theory that in manufacturing it was the last link in the chain that essentially made the money. So if “The nation of shopkeepers” is where it’s at, where do you go from here with fresh produce.
In the words of the famous thinker “Baldrick” you will need “a cunning plan”. The first thing to understand is that “you are not paranoid”. This is due to the fact that the threat to your business is real. In slow markets of this size the retailers believe, quite rightly, that the failure to drive growth can be attributed to suppliers. The lack of marketing, innovation, NPD will be due to a failing in the supply base and will not take account of the sparse gross margin left for suppliers.
It is worth remembering that any business that can be seen can be targetted. Consolidation is being driven at a frightening pace by a marginal costing process, and that will be encouraged by retailers who want growth in a static market.
If we needed any clearer indication of how far this process has to go it was interesting to read the recent article on the Plimsoll report (Dec 10). With 127 companies as the fastest risers and 92 quoted as being at the bottom of the growth spectrum, how many will there be in 2010?
It is worth mentioning here that a common denominator in all successful suppliers within FMCG is the active use of market data, not just to report, but in the formulation of strategy. With the help of TNS we will return to this subject but it is interesting to note that less than 25 per cent of produce suppliers buy external data.
Which brings us back to the development of “the cunning plan”. There are classically four strategy modes; three of which are available to any business and the fourth supposedly no longer available but in practice available to our largest retailers.
PASSIVE: Responsive to input pressure and changing conditions. A reactive business.
ACTIVE: The business plans forward with internal controls and an understanding of the market. Works well within the confines of the capabilities it has. Works with and reacts to the plans of its customers.
PROACTIVE: A business with a vision. It does everything that the active strategy requires but has a clear contingency for downside risk and has defined a plan that leads its customers into new territory. A business that has a forecast of the market ahead and understands the customer’s customers and inputs actively to ensure their customers over-achieve their own vision.
MONOPOLISTIC: Supposedly a thing of the past, as groups like BT and the Post Office were broken up. However some would argue that despite real competition we are close to this position again. It is of course not legal to dominate a market.
The choice is there for every business to decide where it wants to position itself. To help in the process the next few articles will include:
• Understanding Efficient Consumer Response (ECR) and category management.
• Consumer information; getting it and using it.
• Organisational Alignment: the vision, the culture, the infrastructure and the strategy. How and in what order?
• Aisle Management: Making money from space.
• Intellectual Property: Protecting a point of difference.
Many other themes will also be covered. All you have to do now is figure out where to get the energy from. Remember the old adage “if you are working 80 hours a week you are either not good enough, you don’t have enough resources or you are a bloody idiot - life’s too short!”
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